Small Biz Advice: How to Tell if Your Business Idea is a Business

Holly Howard runs Ask Holly How, a small business consulting company based out of Williamsburg, Brooklyn that works with a wide variety of businesses from restaurants to retail to art studios and pretty much everything in between. Her clients report increased income and profit, decreased expenses and a significantly better quality of life. Holly heads up the Small Business Book Club at McNally Jackson Books.

Want valuable insight into how to grow your business? Holly hosts FREE 30 minute strategy sessions at The Yard in Williamsburg. Email her to set up a time hhoward@askhollyhow.com or to ask a question for the next Ask Holly How.

Dear Holly,

I have always dreamed of starting a jam company. Right now I have a full-time job, but I’m considering launching soon. I thought I’d take advantage of the fact that I have a steady paycheck right now and do some planning before I take the leap.

How should I get started? I know I need to write a business plan, but is there any way to know if this business would really work before I dive into that process? I’d just like a clear idea on whether or not my idea can be turned into a viable business.

Thanks,

Jammin’
Dear Jammin’,

Great question. If you want to start simple, start with your financial model. That is the piece of your business plan that will truly determine whether or not you are building a viable business. Numbers never lie. Understanding them is the quickest way to know if you’re headed in the right direction.

First, before you begin a financial model for your business, consider making your own personal budget. So often a mistake I see business owners make is that they fail to truly understand their personal financial needs before they build a business. They just assume that the business will meet their financial needs. If you never get clear on what you actually need to take home from the business, you’re less likely to build the business you need to support yourself.

So the first step you need to take is to sit down and do a thorough analysis of your own living expenses. Consider where you need to be five years out as well. Will you be adding a car payment? A mortgage payment? Child care? Be as thorough and as honest as possible about your personal needs. Trying to sacrifice your quality of life for the sake of your business is never a good long-term strategy.

Next, consider how much it will cost to start your business. Consider everything you’ll need to cover to get this jam business off the ground. Do you need to rent a kitchen? Buy packaging? Get insurance? Get a car? Really spend time flushing out what the business will look like, and don’t forget that you will likely need a three- to six-month cash reserve for operating expenses once your business launches. A lot of businesses fail because they are under funded. Very few businesses can throw open their doors and make a profit from day one. Be sure you include a reserve of cash in your start-up costs.

Once you’re clear on your personal financial needs and how much money it will cost to get that business started, then you can start to look at how to build a business to meet or exceed those needs. The most important document you can look at is called your break even. In the simplest terms, it’s going to show you how much money you need to make every month in order to simply cover all of your expenses—including your own living expenses.

Here’s where owners get tripped up again; they overlook a lot of small expenses that eventually add up and put them in the red. So, when you sit down to make this document, leave no line item out! You’d be surprised at how $60 on extermination adds up after 52 weeks. Most owners go right to the big ticket items like rent, insurance, or payroll. They forget to include the small items that really pack a punch in your financial picture when they all add up. Don’t overlook cleaning supplies, linens, labels for your jam jars, website hosting, payroll tax, etc. And, most importantly don’t forget to include your own needs as well as repaying your start-up costs. If your business can’t cover those costs too, it’s not really a viable business model for you.

It will likely take a few different models for you to come up with the one that works for you. Give yourself time to really flush this out because at the end of the day, no matter how delicious your jam, if there’s no cash there’s no business. And, why put yourself in a jam?!